Popular Science Monthly/Volume 32/November 1887/The Economic Disturbances Since 1873 V

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By Hon. DAVID A. WELLS, LL. D., D. C. L.

IN the preceding paper of this series (No. IV), evidence was submitted to the effect that the remarkable decline in prices which has occurred during the last ten or fifteen years—or since 1873—in the case of the various commodities which constitute the great bulk of the trade, commerce, and consumption of the world, has been so largely due to conditions affecting their supply and demand that, if any or all other causes whatever have contributed to such a result, the influence exerted has not been appreciable; and, further, that if the prices of all other commodities, not included in such analysis, had confessedly been influenced by a scarcity of gold, the claims preferred by the advocates of the latter theory could not be fairly entitled to any more favorable verdict than that of "not proven." But have commodities, other than those whose production and price-experience have been submitted—more especially such commodities as have not in recent years experienced any marked change in their conditions of supply and demand—exhibited in their recent price-movements any evidence of having been subjected to any influences attributable to the scarcity of gold? The answer is, that not only can no results capable of any such generalization be affirmed, but no one commodity can even be named, in respect to which there is conclusive evidence that its price has been affected in recent years by influences directly or mainly attributable to any scarcity of gold for the purpose of effecting exchanges.

In the first place, all that large class of products or services, which are exclusively or largely the result of handicrafts; which are not capable of rapid multiplication, or of increased economy in production, and which can not be made the subject of international competition, have exhibited no tendency to decline in price, but rather the reverse. A given amount of gold does not now buy more, but less, of domestic service and of manual and professional labor generally than formerly; does not buy more of amusements; not more of hand-woven lace, of cigars, and of flax, which are mainly the products of hand-labor; of cut-glass, of gloves, of pictures, or of precious stones. It buys notably less of hides and leather, which are the sequences of cattle-growing, which in turn involves time, and for which, in point of economy, large sections of the earth are not adapted; of horses, and most other animals; of pepper; of cocoa, the cheap production of which is limited to a few countries, and requires an interval of five years between the inception and maturing of a crop; of malt liquors, eggs, currants, and potatoes; and also of house-rents, which depend largely upon the price of land, and which in turn is influenced by fashion, population, trade, facilities for access, and the like.

How little of change in price has come to the commodities of countries of low or stagnant civilization, that have remained outside of the current of recent progress, is strikingly illustrated in the case of a not unimportant article of commerce, namely, the root sarsaparilla; which, with a gradually-increasing demand, continues to be produced (collected and prepared) in Central America, by the most primitive methods, and, without any change in the conditions of supply, save, possibly, some greater facilities for transportation from the localities of production to the ports of exportation. Thus, in the case of Honduras sarsaparilla, at New York, which is the principal distributing market of the world, the average price for the best grade is reported as identical for the years 1881 and 1886; while for the "Mexican," the average reported for 1881 was eight cents per pound, and for 1886, with much larger sales, from seven to eight and a quarter cents.

All the evidence, furthermore, tends to show that there has been very little decline in recent years in the prices of such of the commodities of India as constitute her staple exports, which can not, as will be hereafter shown, be clearly referred to agencies entirely disconnected with any influence assumed to have been occasioned by any increase in the purchasing power of gold due to its absolute or relative scarcity.[1]

Now, all of the commodities referred to, including labor and personal service, and many others which might be specified, whose condition in recent years has not been materially influenced by changes affecting their supply and demand, ought to have exhibited evidence, in a decline of prices, of the influence of the scarcity of gold, if any such had been exerted; but they not only do not, but the drift of the evidence deducible from their price-experiences is rather in favor of the position recently taken by some economists, that gold in recent years, in place of becoming scarce for purposes of exchange, has really been more abundant.

The record of extreme changes in prices by reason of circumstances that are acknowledged to have been purely exceptional, is also most instructive, and removes not a few commodities from the domain of any controverted economic theory respecting monetary influences. thus, from 1863 to 1870, cotton, owing to war influences, ruled so high—from 70 to 800 per cent in excess of normal prices—that its inclusion in computations, with a view of determining any average of prices, or generalization of causes affecting prices during the years mentioned, would, without proper allowance, completely vitiate any conclusions.

War and interruption of traffic on the Upper Nile have increased the prices of "gum-Arabic," and of the drug "senna" in recent years more than 100 per cent. The prices for French and other competing light wines and brandies are much higher than the average for 1866-'67, because the phylloxera has so impaired the production of French vineyards that France now imports more wines than she ex-ports. "Cochineal" and "madder" have greatly declined in price since 1873, because their use as dye-stuffs has been to a great extent superseded by equivalent and cheaper coloring-materials derived from coal-tar; and within a very recent period the discovery of a method of cheaply preparing a chemical preparation from cloves, having all the flavoring qualities of the vanilla-bean, has already diminished the demand, and bids fair to greatly impair the price of this heretofore scarce and costly tropical product. Certain animal products, notably entering into commerce, have rapidly advanced in price in recent years by reason of a rapid diminution in the number of the animals affording them, as buffalo-horns, ivory, and whalebone, which latter product has increased in price from 32½ cents per pound in 1850 to 85 cents in 1870, and $3.50 in 1886.

An agency which has been most influential in recent years, in occasioning a decline in the price of commodities, which has acted universally, which is entirely the outcome of new processes, construction, and machinery, and has no connection whatever with matters pertaining to currency or standards of value, has been the reduction in the cost of transportation or distribution. Its influence has also necessarily manifested itself very unequally, occasioning the greatest price-reductions in the case of articles—like cereals, meats, fibers, ores, and all coarser materials—in respect to which transportation constitutes the largest element of cost at the place of consumption; and least in the case of articles—like textiles, spirits, spices, teas, books, and similar products—where great values are comprised in small bulk. The investigations of Mr. Atkinson show that, had the actual quantity of merchandise moved by the railroads of the United States in 1880 been subjected to the average rate per ton per mile which was charged from 1866 to 1869, the difference would have amounted to at least $500,000,000 (£100,000,000), and perhaps 8800,000,000 (£160,000,000), more than the actual charge of 1880. Comparing 1865 with 1885, Mr. Atkinson further shows that, taking a given weight of goods to be moved from Chicago to New York, one thousand miles, by the New York Central Railroad, 58 per cent of the original value was absorbed in transportation and depreciation of the currency in the former year; while in 1885 only 20 per cent was so absorbed—the charge per ton per mile having fallen from 3.15 cents in 1865 to .68 of a cent in 1885.

The fall in price for the carriage of commodities by sea has also been as remarkable as the decline in the cost of carriage by land. Freight, on the average, between Calcutta and England had experienced a decline of about 50 per cent in 1885 as compared with 1875. In the case of India wheat transported to England via the Suez Canal, the decline in freights was from 7ls. 2d. per ton in October, 1881, to 27s. in October, 1885, or more than 63 per cent. Between 1873 and 1885 the tolls and pilotage on the Suez Canal were reduced to the extent of about 33 per cent.

Freights from New York to Liverpool declined, from 1880 to 1880, as follows (maximum and minimum): On grain, from 914d. to 1d. per bushel; on flour, from 25s. to 7s. 6d. per ton; on cheese, from 50s. to 15s. per ton; on cotton, from 38d, to 768d. per pound; and on bacon and lard, from 45s. to 7s. per ton. Subsequently, prices recovered somewhat, but by no means to the extent of the rates current in 1880 and preceding years.

It is not, however, to be concealed that numerous economists and statisticians of high repute—Mr. Sauerbeck and others—are nevertheless of the opinion that, allowing all that has been claimed for the influence on prices occasioned by reduction of cost through increased and cheapened production and distribution, the decline in recent years is too great to be "simply explained away" by these agencies. But these authorities have specified no commodities, the analysis of whose production and price-experiences in recent years furnish any sufficient foundation for such a general conclusion; and it is interesting to note how the experiences of the few, which at first thought would seem to indicate the sensible influence of "other" agencies, on analysis prove to the contrary. Thus, in the case of wool, Messrs. Helmuth, Swartze & Co., of London, the best recognized authorities on this commodity, in their annual circular for 1887, after admitting the great increase in the production of wool in the years from 1860 to 1886, nevertheless claim that consumption has at the same time increased to such an extent, that the general assumption of an excessive production of this commodity has not been warranted, and in truth has "but slightly exceeded the ordinary growth of population, and that; therefore, other influences must have been at work to cause the great decline in its price which has characterized the course of events during recent years." But to this it may be replied, that when the supply of any commodity exceeds by even a very small percentage what is required to meet every demand for current consumption—specially in the case of a staple commodity like wool, whose every variation in supply and demand is studied every day, as it were microscopically, by thousands of interested dealers and consumers—it is the price which this surplus will command that governs and fixes the price for the whole; and as this can not be sold readily—as under such circumstances no one buys in excess of present demand, and all desire to dispose of accumulated stocks—the result is a decline of prices, in accordance with no law, and which will be more or less excessive, or permanent, as opinions vary as to the extent of the surplus and the permanence of the causes that have occasioned it.[2]

Another illustration to the same effect is afforded in the case of silk, which, according to accepted English statistics, has notably declined in price, comparing the average rates of 1867-'77 with those of 1885, without anything like a corresponding increase in supply. Hence the inference would seem warranted, that some other agency than increased and cheapened production had occasioned the decline in price, and that the case was one which affords support to the gold-scarcity theory. But a careful examination of all the involved circumstances discloses the fact, that within recent years materials other than silk—more especially the "ramie"-fiber—largely enter into the composition of silk fabrications—in the case of the cheaper silks of extensive consumption to the extent of even 60 per cent—and that other methods of adulterating silk, formerly but little known, are now extensively practiced; all of which is equivalent to increasing the supply of silk for manufacturing, far beyond what commercial reports respecting the supply of the fiber would indicate.

Such, then, are the leading and admitted facts illustrative of the nature and extent of the extraordinary and most extensive decline in prices which has occurred in recent years, and which has been the most apparent and proximate (but not the ultimate) cause of the period of economic disturbance which, commencing in 1873, still exists, and seems certain to last for some time longer. Such, also, is a summary of the evidence in support of the view that this recent phenomenal decline of prices is due so largely to the great multiplication and cheapening of commodities through new conditions of production and distribution, that the influence of any or all other causes combined in contributing to such a result has been very inconsiderable, if not wholly inappreciable. Reasoning also from what may be termed the gold standpoint, the evidence to the same effect is not less conclusive.

It would seem, in the first place, that if the scarcity influence of gold on prices had originated and operated as the advocates of this theory claim, such influence would have been as all-pervasive, synchronous, irresistible, and constant as the influence of gravitation; and that something of correspondence, as respects time and degree, in the resulting price-movements of commodities, would have been recognized. But no such correspondence has been or can be established. On the contrary, the movement of general prices since 1873—although generally downward—has been exceedingly irregular; declining until 1878-'79; then rising until 1882-83; then again declining to an almost unprecedented low average in 1886; and in the year 1887 exhibiting, in respect to some commodities, a slight upward tendency. It might also have been expected that the influence of a scarcity of gold would have especially manifested itself at or shortly subsequent to the time (1873-'74) when Germany, having demonetized silver, was absorbing gold, and France and the Latin Union were suspending the coinage of silver. But the years from 1875 to 1879, inclusive, taking the English market as the criterion, were characterized generally by an excessive supply of money and currency of all kinds; and the same has been true of the period from 1880 to 1886-'87, when, if the supply of money from gold was constantly diminishing, contrary results would seem to have been inevitable.

The divergency in the price-movements of different and special commodities has also been very notable—so much so that, out of the long list of articles embraced in the numerous tables that have been prepared by European economists for determining the general average of prices during recent periods, the price-movements of no two commodities can be fairly regarded as harmonizing. While in the case of some staple products, prices fell immediately and rapidly after 1873, the prices of others, although subjected to the same gold-scarcity influence, and which did not have this influence neutralized by a decline of production concurrent with continuing demand, exhibited for a long time comparatively little or absolutely no disturbance. This was especially the case in respect to wool, the price of which, long after metals, breadstuffs, chemicals, and cotton goods had succumbed to the wave of depression subsequent to 1873, "continued" (to use the language of the trade) "remarkably healthy," notwithstanding a continually-increasing product was recognized; and it was not until 1884 that the decline in the general prices of this commodity gave any occasion for anxiety.

Careful comparisons of price-movements in recent years also fail to show any exact correspondence of results as respects different countries, the average fall of prices having been apparently less in France and Germany than in Great Britain during the same period; while the average fall in prices in the United States, in respect to all those commodities which enter into the general wants of man, have been undoubtedly greater than in any other country.[3]

Now, while such results are not in accordance with what might have been anticipated from and can not be satisfactorily explained by any theory of the predominating and depressing influence of a scarcity of gold on prices, they are exactly the results which might have been expected from and can be satisfactorily explained by the conditions of supply and demand—conditions so varying with time, place, and circumstance as to require in the case of every commodity a special examination to determine its price-experience, and which experience, once recognized, will rarely or never be found to exactly correspond with the experience of any other commodity: the leading factor occasioning the recent decline in the prices of sugars having been an extraordinary artificial stimulus; in quinine, the changes in the sources of supply from natural to artificially-cultivated trees; in wheat, the accessibility of new and fertile territory, and the reduction of freight; in freights, on land, the reduction in the cost of iron and steel, and on the ocean new methods of propulsion, economy in fuel and undue multiplication of vessels; in iron and steel, new processes and new furnaces, affording a larger and better product with less labor in a given time; in certain varieties of wool, changes in fashion, and in others an increase of production in a greater ratio than population and their consuming capacity; in ores and coal, the introduction of the steam-drill and more powerful explosive agents; in cheese, a disproportionate market price for butter; in cotton cloth, because the spindles which revolved four thousand times in a minute in 1874 made ten thousand revolutions in the same time in 1885; in "gum-arabic" and "senna," a war in the Soudan; in wines, a destruction of the vines by disease, etc., etc. And yet all these so diverse factors of influence evolve and harmonize under and, at the same time, demonstrate the existence of a law more immutable than any other in economic science—namely, that when production increases in excess of current market demand, even to the extent of an inconsiderable fraction, or is cheapened through any agency, prices will decline; and that when, on the other hand, production is checked or arrested by natural events—storms, pestilence, extremes of temperature—or by artificial interference—as war, excessive taxation, or political misrule or disturbances—prices will advance; and, between these extremes of influence, prices will fluctuate in accordance with the progressive changes in circumstances and the hopes and fears of producers, exchangers, and consumers.[4]

It should also not be overlooked that extraordinary price-movements—mainly in the direction of further decline, and as the result of continually changing conditions in the production and supply of commodities—are constantly occurring, and are likely to continue to occur, unless further material progress is in some way to be arrested. Bessemer-steel rails, which commanded £4 55s. in Great Britain in 1886, sold in Belgium in June, 1887, for £3 16s.; sugar, which was thought to have touched the lowest possible price in July, 1886—2·92 cents per pound in New York (for fair refining in bond), sold in July, 1887, in the same market, for 2·371/2 cents; Western (United States) creamery butter which brought 271/4 cents in November, 1886, declined to 19 cents in July, 1887; while sulphate of quinine, which sold in 1885 for 2s. 6d. per ounce (60 cents), in 1887, owing to continued cheapening in the production and transportation of cinchona-barks and improvements in manufacture, by which more quinine can be made in from three to five days' time than could, a year or two ago, be produced in twenty by old processes, sells for 1s. 8d. (40 cents), and one of the largest of the world's manufacturers of quinine, under date of September, 1887, writes, "No one can predict the future of this product, as all past experience goes for naught."

But a more interesting question, and one more pertinent to this discussion than any other, is: has gold, in recent years, as an instrumentality for effecting exchanges (by measuring the relation between the various commodities and things exchanged), really become scarce—at least to the extent of occasioning, through its increase of value or purchasing power, a considerable fall in the prices of all commodities? And on this point the following is a summary of the evidence in favor of and in contravention of such a supposition.[5] The position taken by the advocates or believers in the gold-scarcity theory, is, in brief, that the production of gold in recent years has largely fallen off and become wholly inadequate to meet the demands for coinage contingent on the increase in the world's trade, wealth, and population; and further, and as a direct consequent, that trade everywhere has been obstructed and depressed; that prices, profits, and wages have fallen, and the burden of public debts and of taxation in general has been augmented.

That the world's annual product of gold—consequent mainly upon the exhaustion of the mines of California and Australia—has largely diminished in recent years is not disputed. Opinions as to the extent of this reduction of supply are, however, widely at variance. This is illustrated by the following tables presented in the "First Report of the British Commission on the Recent Changes in the Relative Values of the Precious Metals," which gives the estimates of Messrs. Soetbeer, of Germany, and Pixley, of London, two of the best recognized authorities on this subject, as to the average yearly amount of gold available for the supply of coin at different periods since 1850:

Soetbeer. Pixley.
1857-'60 £22,780,000 1852-'60 £27,600,000
1861-'70 14,060,000 1861-'70 17,600,000
1871-'80 10,255,000 1871-'80 18,700,000
1881-'84 4,050,000 1881-'85 11,200,000

That trade, in the sense of diminishing volume, has not been obstructed, and that the decline in prices in recent years has not been occasioned, to any appreciable extent, by reason of the scarcity of gold, would appear to be demonstrated by the evidence that has been herewith presented. For the assertion that wages, generally, have fallen, there is absolutely no foundation, as will be shown hereafter. That profits have fallen must be admitted; but such a result has been due, in almost every case, to the severe competition engendered by the desire to effect sales in face of a continued supply of commodities in excess of any current market demand. While in contravention of the assumption that the supply of gold in recent years has been inadequate to meet the increased demands of the world for coinage, etc., the following facts are in the highest degree pertinent, if not wholly conclusive:

No one doubts that the amount of gold in the civilized countries of the world has largely increased in recent years. M. Soetbeer names $538,000,000 as the increase from 1877 to 1885. It is absolutely certain that the reserves of gold in the principal banks of Europe and the United States have in recent years largely increased, and not diminished. Professor Laughlin estimates this increase to have been "from 8477,000,000 in 1870-'80 to 6836,000,000 in 1885." In 1871-'74 there was, according to the same authority, "$1 in gold for every $3.60 of the paper circulation of the banks of the civilized world; in 1885 there was $1 of gold for every 82.40; the total note circulation increasing during the same time to the extent of $464,000,000, or 29 per cent." In 1870-'74 the gold reserves amounted to 28 per cent of the total note circulation, and 64 per cent of all the specie reserves; in 1885 "the gold bore a larger ratio to a larger issue of paper, or 41 per cent of the total note circulation, and 71 per cent of the specie reserves. This," as Professor Laughlin remarks, "is a very significant showing. What it means, beyond a shadow of doubt, is that the supply of gold is so abundant that the character and safety of the note circulation has been improved in a signal manner."

Since 1873-'74 Germany has radically modified her metallic circulation, giving preference to and using additional gold, and the United States and Italy have resumed specie payments. But the supply of gold has been sufficient to give to these nations all the gold that they required, without apparently affecting the requirements of other countries. Again, while the continuing increase in the population of the world" and a more rapid increase in recent years in its production and trade,' have certainly necessitated a continually increasing supply of money for effective exchanges, evidence is not wanting to prove that all such requirements have been met and any possible deficiencies in the supply of metallic money fully supplemented through various agencies. The present annual production of gold is enormous compared with any period antecedent to 1850.[6] Before 1840 its annual production was about $14,000,000; it rose to its highest point—8157,000,000—about 1853; and for the year 1885 (according to the estimate of the Director of the United States Mint) was $101,500,000. The production of silver has also largely increased in recent years ($39,000,000 in 1850, $51,000,000 in 1870, and $124,900,000 in 1885), and no evidence can be produced to show that there has been any actual diminution in its aggregate use by reason of its so-called "demonetization" in any country.

Never before in the history of the world have there been so many and such successful devices invented and adopted for economizing the use of money. Every increase in facilities for banking and for the granting and extension of credits largely contributes to this result; the countries enjoying the maximum of such facilities requiring the smallest comparative amount of coin for their commercial transactions, as is illustrated by the circumstance that while in Great Britain (according to Mulhall) the ratio of metallic money used to the whole commerce of the country is only 20 per cent, the ratio rises in Germany to 34 per cent, in the United States to 58 per cent, and in France to 85 per cent.

Furthermore the banking facilities of the world, according to the same authority, have increased since 1840 eleven-fold; or three times greater than the increase in commerce, and thirty times greater than that of population.

The great reduction in the time and cost of distribution of commodities,and the facility with which purchases can be made and credits transmitted by telegraph, have also resulted, not only in an enormous saving of capital, but also in an ability to transact an increased business with diminished necessity for the absorption and use of actual money. A most striking illustration in proof of this, given by Mr. Fowler ("Appreciation of Gold," London, 1885) is, that while the total British export and import trade, aggregating £6,000,000,000 from 1866 to 1875, was accompanied by an aggregate export and import of £530,000,000 of bullion and specie, an aggregate value from 1876 to 1885 of £6,700,000,000, was moved with the aid of only £439,000,000 of bullion and specie. The same authority refers to an eminent English firm doing business with the East, as stating that "their business could now be conducted with one fifth of the capital formerly employed," which would seem to warrant the inference that the reduction in the necessity for using so much of their capital as was represented by money had also been proportionate.

For the settlement of international balances—a large function of gold—it is certain that every ounce of this metal—through the great reduction in the time of ocean-transits—is at the present time capable of performing far more service than at any former period; the time for the transmission of coin and bullion having been reduced in recent years between Australia and England from ninety to forty days, and from New York to Liverpool from twelve or fifteen to eight or nine days. Such an increase of rapidity in doing work is certainly equivalent to increase in quantity.

The statistics of clearing-houses, which are everywhere multiplying, also show a continued tendency for the settlement of financial obligations without the intervention of either notes or coin; while in every country which has adopted the "postal money-order" system the rapidity with which the public resort to that method of effecting exchanges is most surprising.[7]

In estimating the influence of the diminished production of gold in recent years, it is important to bear in mind a point to which attention has been often heretofore called, and that is, that gold and silver are not like other commodities, of which the greater part of the annual production is annually consumed; but that their use for the purpose of effecting exchanges does not involve consumption, except by loss and wear; that the work they have once done they are equally ready to do over and over again, and that every addition to their stock "is an addition to the fund available for exchanges." The aggregate sum by which the yearly average amount of gold available for coining fell off during the period from 1861-'70 as compared with that from 1852-'60,[8] when the mines of California and Australia were most productive, was (adopting Mr. Pixley's estimates) less than £100,000,000 ($500,000,000), a sum absolutely great, but most inconsiderable—less than one sixth of one per cent—in comparison with the amount of gold believed to have been in existence in civilized countries in 1885;[9] and that such deficiency—even if a much higher estimate than that of Mr. Pixley's is adopted—has for each and every year for a considerable period been far more than supplemented and made good by the reduction in the amount of capital, in the form of money, which the increased facilities for doing business have permitted and effected, is a proposition also which it would seem could not well be doubted.[10]

The evidence, therefore, seems to fully warrant the following conclusions: that the tendency of the age is to use continually less and less of coin in the transaction of business;[11] and that "so far from there being any scarcity of gold, there never was a period in the world's commercial history when the existing quantity was so large as at present, in proportion to the necessity for its use or the purposes it has to serve."

It is also exceedingly interesting and significant to note here how completely the most distinguished advocate of the desirability of enlarging the function and use of silver in coinage has repudiated the idea that the recent phenomenal decline of prices has been occasioned by a scarcity of gold. Thus, under date of April 24, 1886, M. Cernuschi thus writes in the London "Economist": "The fall of prices which is complained of is not due to what has been called a scarcity of gold—a scarcity which is purely imaginary." M. Sauerbeck, in referring to this matter ("Journal of the Royal Statistical Society," September, 1886), also says: "A scarcity" (of gold) "as understood by bankers does not exist. Prices have fallen so much that scarcity is not observable. As Mr. Giffen pointed out, there may be enough for present requirements, and the scarcity will only be felt when prices rise." But if prices have fallen through the ingenuity of man, will prices return to their former level? Certainly not, unless the coming man is less ingenious than his present representatives, and Nature is to be less generous in the future of her resources. The answer of Mr. R. Inglis Palgrave, an English economist of repute, who has recently published extensive memoranda on prices, to a question put to him by the British Gold and Silver Commission (1886), as to "how far the drop in prices is attributable to the alteration in the use of the gold standard," is also worthy of note, and was as follows: "In my opinion it is only a small part of the drop in prices which is attributable to the appreciation of the standard." The present and rapidly increasing indifference of the business public, alike in Europe and the United States, whose interest in this subject is mainly practical, is also significant, as indicating that the importance formerly conceded to the gold-scarcity theory has not been confirmed by experience.

It will be further relevant to this discussion to call attention here to the manner in which certain admitted facts touching the recent fall in prices have been misunderstood, and, more especially, have been perverted, with a view of sustaining this same theory and of creating exaggerated ideas respecting impending disasters, and the power of legislation to provide remedies. Thus, in illustration of the assumption that the quantity of gold in the world, available for use as money, mainly regulates prices, and that, prices having fallen by reason of a scarcity of gold, the ratio of debts to assets, or the burdens upon debtors, has been increased, Mr. Moreton Frewen, of England, has frequently in recent years made the following statement: Premising that the national debt of the United States was £000,000,000 sterling ($3,000,000,000) in 1866, and £220,000,000 ($1,100,000,000) in 1887, he says:

"Six hundred millions sterling owing in 1866 represent 18,000,000 bales of cotton, or 25,000,000 tons of bar-iron. But at the prices of to-day, only £220,000,000 sterling is represented by some 26,000,000 bales of cotton, or 29,000,000 tons of bar-iron."

Therefore, the burden of the national debt of the United States has been increased, as a greater effort of labor, or an increased amount of the products of labor, is now necessary to liquidate it than when the purchasing power of gold had not been appreciated through its scarcity; and, as with public debts, so also with private debts, especially those in the nature of mortgages on land, or other productive fixed capital.

Now, in reply to this it is to be said, first, that the basis assumed for this comparison of prices, in the case of cotton, is entirely unfair and unnatural—the gold price of this commodity in the year 1866, owing to a scarcity occasioned by war, having been more than 250 per cent higher than the average prices in 1860 before the war; while the price of iron for that same year in the American markets was also inflated on even a gold basis; and, secondly, that no consideration is given, or allowance made in the above comparisons for the results of labor at the two periods of 1866 and 1887; not more, and probably much less, actual labor in 1886-'87 having produced 6,513,000 bales of cotton in the United States than was required in 1860 to produce 3,800,000 bales;[12] while in the case of iron the same amount of labor will produce in 1887 more than double the quantity, in the more valuable form of steel, than it could have produced in 1886. In short, if the debtor has got more to pay, he has more to pay with.

Again, it is a popular idea that the steadily increasing supply to the markets of the world during recent years of wheat, the product of low-priced labor from India—seriously affecting, through its competition, the prices and profits alike of the agriculturists of the United States and of Europe—has been in some way occasioned by the change in the relative values or purchasing powers of gold and silver, consequent on the "demonetization" of the latter metal—although no one as yet has been able to trace with any degree of clearness any connection between the two facts—and that an imperative necessity exists for some speedy and international remedial legislation. To all entertaining this idea, the following summary of evidence, brought out by the British Gold and Silver Commission in the course of their investigations prosecuted during the present year (1887), is especially worthy of attention:[13]

There was practically no trade or movement in wheat between Europe and India until two or three years after the opening of the Suez Canal, or until about 1873; in which year exportations were further encouraged by the removal of an Indian export duty on wheat of about 6 per cent. In June, 1881, and June, 1886, the prices of Cawnpore wheat at Calcutta were at the same level, namely, 2·9 rupees per maund. The cost of Indian wheat in London in 1881 was 42s. a quarter, and 31s. 6d. in 1880, or 10s. 6d. difference. In 1881 the rate of freight on wheat from India to London was 60s. per ton, and in 1886 30s., a difference of 30s. per ton, or 6s. 6d. per quarter. The decline in freights, therefore, accounts for 6s. 6d. out of the 10s. 6d. per quarter difference between the prices of Indian wheat in London in 1881 and 1886, respectively, leaving 4s. per quarter to be contributed by other agencies. Between 1879 and 1886 the charge for the railway transport of grain between Cawnpore and Calcutta (684 miles) was reduced to the extent of about 2s. per quarter, which represented to the purchaser in Calcutta an equivalent reduction in the cost of Indian production, and in the absence of which the Calcutta and European prices would obviously have been correspondingly increased. A further reduction of 6d. per quarter "is probably owing to a decline, during the same period, in the price of the gunny-bags" in which the wheat is transported; leaving 3s. 6d. per quarter, which may not unreasonably be referred to, and fully accounted for, by the extraordinary decline of more than 12s. per quarter, between the years 1880 and 1885, in the export price of American wheat; which, as the largest factor in determining the world's surplus of this commodity, is also necessarily the largest factor in determining what shall be the price of this surplus in the world's market.

Evidence was also submitted to the British Trade Depression Commission in 1866, to the effect that the increase of the acreage under wheat in India "exactly agrees with the development of the Indian railways," and that "when more railways are made in India, a very much larger wheat production will immediately follow."[14] The evidence, therefore, warrants the belief that the fall in recent years in the price of Indian wheat, and its consequent appearance as an important element of supply in European markets, is to be accounted for mainly, if not entirely, by changes in the conditions of its production and supply, and not by any changes in the relative values of gold and silver; and further, that if every measure for extending the monetary use of silver, which has been proposed, should be carried out to the fullest extent, it would produce no sensible influence in restraining the Indian ryot from competing with American and European agriculturists in the sale of wheat in the world's markets.

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  1. According to Mr. Robert Giffin, in his testimony before the British Commission, "On the Changes in the Relative Values of the Precious Metals," 1886, the general result of a comparison of India prices submitted to the Commission "On Trade Depression," shows a fall of only two per cent in 1880-'84, as compared with 1870-'74, or with the period immediately before the fall in silver:

    "The general conclusion appears to me to be that the effect of the present relations between gold and silver have not told appreciably on prices in India, or on the relative progress of her import and export trade."—Testimony of Sir Lons Mallet, late Under-Secretary of State for India, Trade Depression Commission, 1886.

  2. The estimates of Messrs. Helmuth, Swartze & Co., were that the wool product of the world increased from 1871-'75 to 1886—or during a period of from eleven to fifteen years—35 per cent; while the increase in the world's consumption of wool from 1860 to 1886—a period of twenty-five years—was from 2.03 pounds to 2.66 pounds per head, or in the ratio of 30 per cent.
  3. The following extract from the "Report of the Chamber of Commerce of Cincinnati, Ohio," for the year ending August 31, 1886, strikingly illustrates the extraordinary decline in the price of staple commodities in this great interior market of the North American Continent:

    "There is one condition revealed"—i. e., by the statistics of 1885-'86—"that is very noticeable, which is that prices in general touched the lowest point in a quarter of a century. There were those who supposed that the shrinking processes had been arrested in the preceding year, and yet the figures for 1885-'86, in nearly all departments of business, show lower prices than the previous year. In presence of the low prices of 1884'85, it seemed almost incredible that so much of market value could be wrung from them as has been during the past year. Thus, commencing near the alphabetical list, bran declined 9 per cent; creamery butter, 20·7; butterine, 18; candles, 18·7; soap, 15·2; cattle, 8; coal, delivered, 7·8; middling cotton, 11·9; feathers, 6·7; dried apples, 27·4; No. 2 mixed (shelled) corn, 14·6; No. 2 oats, 5·3; New Orleans molasses, 11·6; Louisiana rice, 13·1; hay, 5; hops, 25·2; mess-pork, 21·1; prime lard, 10·7; lard-oil, 11·7; tallow, 22; white-leaf tobacco, 25; flax-seed, 18·4; starch, 13·4; high wines, not including the taxes, 16·3. In a few articles—tanners' bark, clover-seed, lead, barley, wool, etc.—there was an advance; yet the number is so small as to make them quite exceptionable.

    "While the depreciation which has taken place the past year (1885-86), compared with the prices of 1884-'85 has been marked, it may be interesting to take a glance at the tremendous reduction which has taken place in the past five years, which, in articles that enter into the every-day wants of man, in not a few instances has been equal to almost one half their value in 1881-'82. The gravitation to a lower plane of value has been so steady as to prevent a full appreciation of the enormous shrinkage to which commodities have been subjected. Thus, in mess-pork the depreciation in the general average price since 1881-'82 has been 48·5 per cent; in prime steam lard, 46; hams, 24·4; shelled corn, 43; oats (which in Europe have shown no tendency in recent years to fall in price), 39·4; rye, 32·6; bran, 33·8; extra butter, 46·9; tallow, 41·4; flour, 34·3; linseed oil, 30; salt, 18·6; cheese, 17·1; fair to medium cattle, 18·3; middling cotton, 21·7; Louisiana rice, 28·9; barley, 18·6; and wool, 15 per cent."

  4. In new countries, or countries where industry is confined to the production of a few staple products, like wool, wheat, sugar, etc., a decline in prices exerts a wider and much more disturbing influence than in countries where there is great diversity of industry, and where the sources of income and the opportunities for employment are more numerous and more varied. In the latter all branches of industry are rarely depressed at the same time, and prosperity in some compensates to a certain extent for adversity in others. But, in countries of inferior industrial organization and diversification, the interests of the entire community are so common and united that the tendency is always, for a change of price in one commodity—either rise or fall—to unduly influence the prices of all commodities. And this, according to the London "Statist," is what has been particularly noticeable in Australia, where such a sympathy obtains between the three great products of that country—wool, wheat, and copper—that it rarely happens that one of them droops in price without the price of the others rapidly weakening.
  5. To avoid confusion of ideas on this subject, it is desirable that the reader should keep clearly in view that price is the expression of the value of a commodity in terms of money, and that the expressions, "fall in prices" and "appreciation of gold," for purposes of the present discussion, mean really one and the same thing. "If you have a fall in prices, you have an appreciation of gold; and if you have an appreciation of gold, you have a fall in prices." The problem presented is, therefore, not has gold appreciated in value or purchasing power—for, a fall in prices being admitted, such a result becomes inevitable and coincident—but has its appreciation been due to something that has befallen commodities, or something that has befallen gold itself, such as scarcity of supply or extraordinary demand?
  6. "In the last thirty-five years, one and one third times as much gold has been produced as in the three hundred and fifty-eight years preceding 1850."—Laughlin.
  7. The number of "postal"-orders issued by the British Post-Office in 1886 was 18,831,164, representing £7,883,347 (639,226,735); while money-orders, domestic and foreign, were issued during the same year to the amount of £25,012,337 (8125,061,685). In the countries comprising the Postal Union of Europe, the issue of domestic money-orders had risen in 1885 to the large amount of $1,821,000,000.
  8. It is interesting to note that the yearly average amount of gold available for coinage was greater, according to Mr. Pixley's estimates, from 1871-'80 than from 1861-70.
  9. M. Sauerbeck estimates the total amount of gold in the form of coin and bullion in Europe (excluding the Balkan Peninsula), the United States, and Australia, at the end of 1884, to have been £645,000,000 ($3,225,000,000).
  10. "The trade of the world is carried on by credit and capital, and any causes affecting these essentials have infinitely greater effect on prices than a slight proportionate increase or decrease in the production of gold. A merchant may not hold ten sovereigns, but he may have capital and credit for ten millions. An ingenious statistician has calculated the capital of the world in 1880 at £46,000,000,000" (sterling—$230,000,000,000), "and if credit and capital have had the main voice in the question of prices, how minute must have been the effect on the markets of an annual reduction in the production of floating capital of ten (sterling) millions per annum, from a short period of most exceptional production; especially when the falling off has been more than balanced by the increased economy in the use of gold!"—Nathaniel Core, "What is the True Measure of the Alleged Appreciation of Gold?" London, 1883.
  11. Repeated investigations made in England in recent years prove that only about 0·6 per cent of coin is used in settling the transactions of banks and bankers of that country; and the results of an inquiry instituted by the United States Controller of the Currency in 1881 showed that of all the receipts by 1,966 national banks in one day in that year (June 30th), 95 per cent were made up of forms of credit, exclusive of even circulating notes; while for New York city the percentage was 98·7. At all the banks the proportion of gold coin to the whole receipts was only ·65 of 1 per cent.
  12. The increase in the cotton product of the United States since 1860 has been due mainly to the increased use of fertilizers, better tillage, better conditions for the employment of labor. In the Brazos alluvial region of Texas, which ranks among the first of cotton-producing regions, the relative increase in cotton product and population between 1870 and 1880, according to the United States census, was 1·8 to 1. In what is termed the "oak-upland" regions of North Carolina, the product of cotton in 1880 had increased over that of 1870 in the ratio of 4·5 to 1, or this region in 1880 produced more cotton than the product of the entire State in either 1870 or 1860. "This remarkable result," according to the special United States census report on cotton for 1880, "was due mainly to the introduction and general use of commercial fertilizers, which not only increase the crop, but hasten its maturity from two to three weeks, and so bring into the cotton belt a strip of plateau country whose elevation, of from 800 to 1,200 feet, had placed it just beyond the climatic range of the cotton-plant. This change is in no respect due to altered relations of labor."
  13. See "First Report of the British Commission"—evidence of Henry Waterfield, C. B., Financial Secretary of the India Office, and representing the Government of India, pp. 125, 126.
  14. On this subject, the following testimony was submitted to the British Commission on the Depression of Trade, 1886, by Mr. W. J. Harris, who is recognized as an authority in England on agricultural subjects:

    "Our Indian Empire seems able to extend its corn-growing industry to almost any extent, and to produce more cheaply than any other country in the world. I am aware that Sir James Caird gave a somewhat different evidence on this question, but I think that neither Mr. Giffen nor Sir James Caird have taken sufficiently into account one or two things in their statistical computation. They both maintain that the population of India is too large, or is getting too large, for the means of production. They do not seem to remember that every unit of population in India consumes about a fifth part of what the unit of population in the United States does. It is a comparison between India and the United States. Both Sir James Caird and Mr. Giffen admit that the capabilities of the United States are very enormous, but they think that the capabilities of India are comparatively very small. I differ from them, and I will give my reasons. If we follow (on the maps of India) the course of the railways which have been made for some time, you will find that the acreage under wheat exactly agrees with the development of those railways; and it appears to me that when more railways are made in India, a very much larger wheat production will immediately follow. I have made several inquiries from the principal merchants who do business with India, and who have agents at many central points, and they all agree that the wheat production in India is not nearly developed yet. The population is not encroaching on the means of subsistence so much as the mere statistician would argue, because he does not take into account the habits of the people; and I believe that the United States population, in consequence of the habits of its people, is encroaching just as fast on their means of subsistence as are the people of India. There is a large acreage in India that is not fully cultivated with anything at the present time, and, where it is, it is very imperfectly cultivated, and the prices of produce are exceeding low in places remote from railway communication. Agriculture is very rude; they have very little machinery. The system might be greatly improved, and the produce thereby increased."—Third Report on the Depression of Trade, pp. 82, 83.